intention of the parties, the provision was a primary and essential consideration in the granting the lease; that the government was bound by its contract, subject to the same rules as private parties; that the owner was entitled to the reversion; and finally that it was not 'ridiculous' nor 'unjust' that it should pay its present value.
In Anderson-Tully Co. v. United States, supra, 189 F.2d 192, no question was raised as to the earth fill, mooring pilings, or warehouses. The problem was whether the trial judge erred in excluding evidence as to value of 'piling structures' erected by the government as lessee of the property. The court recognizes the exception, 189 F.2d at page 196, 'not intended to irrevocably become a part of the realty', citing Futrovsky v. United States, 1933, 62 App.D.C. 235, 66 F.2d 215, and see Potomac Electric Power Co. v. United States, 1936, 66 App.D.C. 77, 85 F.2d 243, at pages 247-248; United States v. Four Parcels of Land in City of New York, D.C.S.D.N.Y.1937, 20 F.Supp. 306, at pages 307-308.
Implicit in the argument of the government in these cases is the espousal of a doctrine that in time of war or where the government is a party to litigation, well settled principles of law should not prevail. The fundamental idea of the government of the United States as created by the Constitution is that it is a government of laws and not of men. 54 Am.Jur. United States, § 4, p. 522, § 116, p. 627; E. C. Shevlin Co. v. United States, 9 Cir., 1944, 146 F.2d 613, at page 615; Jones v. Watts, 5 Cir., 1944, 142 F.2d 575, at page 577, 163 A.L.R. 240; Brent v. Bank of Washington, 1836, 10 Pet. 596, at page 614, 35 U.S. 596, at page 614, 9 L. Ed. 547; Curtner v. United States, 1893, 149 U.S. 662, at page 671, 13 S. Ct. 985, 1041, 37 L. Ed. 890. The provisions of the Fifth Amendment and the teachings of the United States Supreme Court are to the effect that the ascertainment of compensation is a judicial function and no power exists in any other department of the government to declare what the compensation shall be or to prescribe any binding rule in that regard. Monongahela Nav. Co. v. United States, supra, 148 U.S. at page 327, 13 S. Ct. at page 626.
The measure of compensation is a federal question. United States v. Miller, supra, 317 U.S. at pages 379, 380, 63 S. Ct. at pages 282, 283; Kinter v. United States, 3 Cir., 1946, 156 F.2d 5, 6, 172 A.L.R. 232. The burden of establishing value of the property condemned is upon the property owner. United States ex rel. T.V.A. v. Powelson, supra, 319 U.S. at pages 273-274, 63 S. Ct. at pages 1051, 1052; United States v. 26.07 Acres of Land, etc., D.C.E.D.N.Y.1954, 126 F.Supp. 374, at page 377. Value is to be ascertained as of the date of taking, i.e., August 23, 1954. United States v. Miller, supra, 317 U.S. at page 374, 63 S. Ct. at page 280.
In an effort to find some practical standard, the courts early adopted and have retained the concept of market value. The test is objective. The owner is entitled to the 'fair market value' of what is taken, i.e., 'what 'it fairly may be believed that a purchaser in fair market conditions would have given"; 'what a willing buyer would pay in cash to a willing seller'. United States v. Miller, supra, 317 U.S. at page 374, 63 S. Ct. at page 280; United States v. Toronto, Hamilton & Buffalo Nav. Co., 1949, 338 U.S. 396, at page 402, 70 S. Ct. 217, 94 L. Ed. 195.
'Perhaps no warning has been more repeated than that the determination of value cannot be reduced to inexorable rules.' United States v. Toronto, etc., Nav. Co., supra, 338 U.S. at page 402, 70 S. Ct. at page 221. It is not a matter of formula, United States v. Miller, supra, 317 U.S. at pages 373-374, 63 S. Ct. at pages 279, 280; United States v. Cors, 1949, 337 U.S. 325, at page 332, 69 S. Ct. 1086, 93 L. Ed. 1392; United States v. Commodities Trading Corp., 1950, 339 U.S. 121, at page 123, 70 S. Ct. 547, 94 L. Ed. 707.
When the court adopts the standards of the market place in making valuations, there is no reason why it should close its eyes to how the market place arrives at and applies the standards. Cade v. United States, 4 Cir., 1954, 213 F.2d 138, at pages 140, 141. The determination is to be made in the light of all relevant and material facts affecting market value that are shown by the evidence taken in connection with those of such general notoriety as not to require proof, taking into account all considerations that fairly might be brought forward and reasonably be given substantial weight in such bargaining. Olson v. United States, supra, 292 U.S. at page 257, 54 S. Ct. at page 709; all facts which an ordinarily prudent man would take into account before forming a judgment as to the market value of property he contemplates purchasing. Cade v. United States, supra, 213 F.2d at page 141; United States v. Ham, 8 Cir., 1951, 187 F.2d 265, at page 267.
Finally, there must be a reasonable judgment having its basis in a proper consideration of all the relevant facts appearing in the evidence. Standard Oil Co. of New Jersey v. Southern Pacific Co., 1925, 268 U.S. 146, at page 156, 45 S. Ct. 465, 69 L. Ed. 890.
The measure is the owner's loss, not the taker's gain. United States ex rel. T.V.A. v. Powelson, supra, 319 U.S. at page 281, 63 S. Ct. at page 1055; see and cf. at page 282, 63 S. Ct. at page 1056.
'It may be more or less than the owner's investment.' Olson v. United States, supra, 292 U.S. at page 255, 54 S. Ct. at page 708. 'He must be made whole but is not entitled to more. It is the property and not the cost of it that is safeguarded * * *. Just compensation includes all elements of value that inhere in the property, but it does not exceed market value fairly determined. The sum required to be paid the owner does not depend upon the uses to which he has devoted his land but is to be arrived at upon just consideration of all the uses for which it is suitable.
The highest and most profitable use for which the property is adaptable and needed or likely to be needed in the reasonably near future is to be considered, not necessarily as the measure of value, but to the full extent that the prospect of demand for such use affects the market value while the property is privately held. * * *' Olson v. United States, 292 U.S. at page 255, 54 S. Ct. at page 708.
Where there is market price prevailing at the time and place of taking, that price is just compensation. L. Vogelstein & Co., Inc., v. United States, 1923, 262 U.S. 337 at page 340, 43 S. Ct. 564, 67 L. Ed. 1012; United States v. New River Collieries, supra, 262 U.S. at page 344, 43 S. Ct. at page 567. Where, for any reason, property has no market, resort must be had to other data to ascertain its value, and even in the ordinary case, assessment of market value involves the use of assumptions, which make it unlikely that the appraisal will reflect true value with nicety. Where the property taken, or that in its vicinity, has not in fact been sold within recent times, or in significant amounts, the application of this concept involves, at best, a guess by informed persons. United States v. Miller, supra, 317 U.S. at pages 374-375, 63 S. Ct. at page 280; see United States v. Toronto, etc., Nav. Co., supra, 338 U.S. at page 407, 70 S. Ct. at pages 223, 224.
The Railroad, presenting its case as to valuation, offered three witnesses, Lawrence F. Doud, Sidney Hinerfeld, and Harry M. Gordon, all of whom as reputable, experienced, competent and able realtors in the City of Scranton, were familiar with the property in question. Each made an examination of the property, structures and improvements; study and research; for the purpose of arriving at an opinion as to the fair market value. Each considered the economic factors of the community at large, location, municipal and governmental services and facilities, utilities, transportation, availability of two railroads, railroad sidings, highways, truck, airline and bus services; availability of coal, gas and water; good climate; abundant labor supply, recreational facilities; the property and its appointments; the third estate, use and adaptability. All three witnesses and George S. Potter, a reputable, experienced, competent real estate broker and appraiser from New York City, who testified for the government, agreed that of the three conventional or orthodox methods of appraising a property, reproduction cost new less depreciation -- the summation approach -- was not, under the circumstances, applicable.
The witness Doud testified it was impossible to use the market data (comparative or comparable) method or approach because in his opinion there was nothing of a comparable nature in the area on which to base any figures. Cf. United States v. Lambert, 2 Cir., 1944, 146 F.2d 469, at page 472; United States v. .44 Acres of Land, D.C.S.C.1954, 121 F.Supp. 862, at page 871, citing 4 Nichols on Eminent Domain, p. 59. Considering the aforementioned basic factors and using the income data approach, his opinion of the fair market value of the property in question as of August 23, 1954, the date of taking, was 'somewhere between $ 3,500,000 and $ 4,000,000.' This result was reached by capitalizing the $ 400,000 net rental from the existing lease at a 10% and 12% rate.
The witness Hinerfeld, who specializes in management rental and sales of commercial and industrial property in the area, cf. Cades v. United States, supra, 213 F.2d at page 140, considering, in addition to the basic factors, surplus labor within the context of supply and demand, the existing lease, giving some but not much consideration to the option -- see cases supra, 154 F.Supp. 778 -- using the market data or comparable, and the capitalization of income approaches, testified that at a reasonable and basic minimum the fair market value of the property as of the date of taking was $ 2,250,000.
In capitalizing income he recognized the existing lease at a $ 400,000 net annual rental but stated that it was unusual because of the fifteen month original term and the possibility of four annual renewals or options. Usually leases for industrial properties are for a longer term. Because of the risk of early termination, balanced with the stability of the tenant, i.e., Hoffman, and the investment involved, he first used a capitalization rate of 18%, which he testified was unusually high for industrial real estate which can generally sell at 10 to 12 or 13%. Considering the possibility of an early termination of the lease and that the next tenant may not be able to utilize all of the unique factors of the property or that the change might occur when there was a declining market in the industrial field, because industrial values fluctuate, based upon his experience and knowledge of rentals in the industrial field in the area, he testified that existing rates were from 50 cents to 92 cents a square foot. He then set up a hypothetical rental of 60 cents a square foot for the property in question, i.e., a figure that some other tenant may at some future time be willing to pay -- i.e., gross rental, not net as here -- because in the industrial field leases are generally made on that basis. Capitalizing income on the basis of such a hypothetical rental, he testified that 450,000 sq. ft. would yield $ 270,229 (sic N.T. p. 224); deducting normal fixed expenses which on a gross lease every landlord has, i.e., taxes roughly $ 39,963, fire insurance $ 1,747, liability insurance $ 500, structural repairs $ 2,798, or a total of $ 45,000, he arrived at a net rental of $ 225,229. Capitalized at 10% and projecting it over a reasonable period of years, he testified that in his opinion the property could sell for $ 2,250,000.
Testifying that there was no property in the area exactly comparable in size, construction or appointments, but that there were sales of other industrial properties with non-conforming features; using judgment based on experience, he tried to get as close to comparables as possible. Citing five sales;
comparing the conforming and non-conforming features with the appointments and favorable features of the subject property, he stated that its absolute minimum fair value was $ 5 a square foot, and that for 450,000 sq. ft. the fair market value as of the date of taking was $ 2,250,000.
The witness Gordon, using the capitalization of income and market data or comparable approaches, arrived at the same value as Hinerfeld, i.e., $ 2,250,000.
The witness Potter for the government, unfamiliar with the property, sales or rentals in the area,
when engaged by the government, examined the property, photographs and reports by those in charge and made an independent study and research. Considering some sales and rentals of what he considered comparable properties in the area and many others from what he considered competitive areas -- other parts of Pennsylvania, Connecticut, New York, New Jersey, Illinois
-- using the capitalization of income and market data approaches, he testified that in his opinion the fair market value of the property as of the date of taking, considering it as 480,000 sq. ft. at $ 2.08 per square foot was $ 1,000,000.
The witness did not consider the lease, the $ 400,000 net rental
or the option as factors in determining fair market value. Land value was placed at $ 5000
an acre or $ 80,000,
about the same figure as the assessed valuation. Cf. United States v. Delano Park Homes, Inc., 2 Cir., 1944, 146 F.2d 473, at page 474; Berger v. Public Parking Authority of Pittsburgh, 1954, 380 Pa. 19, at page 27, 109 A.2d 709. Gross rental was estimated to be $ 192,000;
net $ 111,400 -- attributable to improvements. Capitalized at the suggested rate, the result was $ 1,011,178 for improvements; adding $ 80,000 land value made a total $ 1,092,000; less 10% or $ 109,200, because of the wall and land conditions, left a balance of $ 982,800. Including the items in Note 11, but excluding facilities and equipment, $ 1,000,000 was the capital value.
The commission, the better to understand, weigh and appraise the testimony, conducted a view and inspection of the premises, Forbes v. United States, 5 Cir., 1920, 268 F. 273, at page 277; Woodlands Cemetery Co. v. United States, D.C.E.D.Pa.1953, 110 F.Supp. 704; Shoemaker v. United States, 1893, 147 U.S. 282, at page 306, 13 S. Ct. 361, 37 L. Ed. 170; Columbia Heights Realty Co. v. Rudolph, 1910, 217 U.S. 547, at page 560, 30 S. Ct. 581, 54 L. Ed. 877. Expert opinions as to value are not to be passively received or blindly followed. They should be judged in the light of all the testimony and the commission's general knowledge of affairs and given such consideration as they believe them entitled to receive. Cf. 18 Am.Jur. Eminent Domain, § 355, p. 999. The commission however cannot act in any case upon particular facts material to its disposition resting in their private knowledge ( Welch v. T.V.A., supra, 108 F.2d at page 101) but should be governed by the evidence adduced. They may, however, and to act intelligently they must, judge of the weight and force of the evidence by their own general knowledge of the subject of inquiry. Head v. Hargrave, 1881, 105 U.S. 45, at page 49, 26 L. Ed. 1028; United States v. 2.4 Acres of Land, etc., 7 Cir., 1943, 138 F.2d 295, at page 297; International Paper Co. v. United States, 5 Cir., 1955, 227 F.2d 201, at page 205; Sartor v. Arkansas Natural Gas Corp., 1944, 321 U.S. 620, at pages 627-628, 64 S. Ct. 724, 88 L. Ed. 967; United States v. Certain Lands located in Town of Highlands, D.C.S.D.N.Y.1944, 57 F.Supp. 96, at page 98.
Considering the matter -- the whole record -- from all angles, the commission did not accept in full the opinions of the witnesses for either side as to fair market value. Applying their own general knowledge and ideas to the facts and evidence, i.e., that which was material, relevant and competent, they concluded that the fair market value of the property as of the date of taking was $ 1,720,700.
The findings and conclusions of the commission are supported by substantial evidence; the amount of the award is within the range of the estimates given by competent witnesses. The question of just compensation was one of fact for the commission. They have decided it in a fair and lawful manner. See United States v. Certain Lands in the City of Newark, supra, 183 F.2d at page 322; Porrata v. United States, 1 Cir., 1947, 158 F.2d 788, at page 791; Phillips v. United States, 2 Cir., 1945, 148 F.2d 714, at page 716; and see United States v. Certain Parcels of Land, etc., supra, 215 F.2d at page 145.
All of the findings of fact and conclusions of law of the commission are adopted; incorporated herein by reference; and affirmed.